Wells Fargo defers reckoning on troubled mortgage balances (Eckblad, DJ) Wells’ book of option ARMs threatens to blow up in the next few years as the loans recast, forcing borrowers to start paying down principal, not just making a minimum payment as they might on a credit card. Turning them into 6-10 year interst only loans pushes back the pain for the borrower…extend and pretend. The example used in the article notes that as part of the modification, this borrower gets a $100k reduction in principal owed. That’s not nothing. Writing down principal reduces the borrowers leverage, and it means the bank is taking a loss on part of the loan balance. Call it a silver lining.

Mirabile Dictu! Goldman lost money one day last quarter (Yves Smith) In its quarterly filing with regulators, Goldman published a “frequency distribution” for daily profits. That’s a fancy way of describing the average amount of money it made each day last quarter. Out of 65 trading days, only once did it lose money. And a pittance at that. (Alphaville published the chart yesterday.)

FDIC reduces risk-weight to 0% on TLGP-backed debt (FDIC) Yuck, that sounds complicated. Say you’re a bank, and you hold GMAC bonds that were sold with an FDIC guarantee. Normally when you have a bond on your balance sheet (an asset) you have to carry capital against it just in case the bond’s value declines. But for regulatory capital purposes, FDIC-backed debt is now the functional equivalent of Treasuries. “Risk-free” as it were. This will allow banks to hold more TLGP-backed debt on their balance sheet.

Goldman benefits from debt gold mine (Eavis, WSJ) Speaking of cheap funding, the average interest rate on Goldman’s long-term debt is down to 0.92% from 3.53% a year ago. Eavis notes this is due to clever hedging. Pretty easy to make money as a bank when your cost of funds is close to zero. Helps to have the implicit backing of the government.